Question

Name 3 markets or products, where due to the small size observed in most companies, it tends to indicate the presence of economies of decreasing scale 8 Aa © © © XI - No sir QWERTYUIOP ASDFGHJKL Ñ + zxc v BNM ® 123 espacio intro

Answer 1

Economies of decreasing scale means if all the factors of production are increased in a given proportion, output increases in a smaller proportion.3 market or products where this law holds are:-

1. Agriculture:- A farmer using fertilizer as an input in the process for growing peas. Each unit of added fertilizer will only increase production return marginally up to a threshold. At the threshold level and above it, the added fertilizer does not improve production and may harm production.

2. Mining:- As more and more minerals are extracted from the mines, the levels of minerals go down. There is need of light, oxygen, water, more labourers etc for deep extraction,. All this would involve more expenses and hence the law of diminishing returns would operate quickly.

3. Fisheries:- For catching fish after some time we have to go into deep water. This would involve wastage of time in going into deep water and then coming back to the bank or shore. Also in deep sea, the number of catching may not be too big.